The implementation of KPIs

Developed by Shri Tejas Vedula

Abstract

Performance measurement is an important aspect in organisations all around the world. The performance measures should help align the activities to the objectives of a project or an organisation. Indicators for performance hence, aid in transforming and communicating performance measurement to the respective members involved in an organisation. Key Performance Indicators or KPIs are critical indicators that aid in tracking the progress of a project, program or portfolio. The article,firstly, intends to cover the explanation and intended development and use of KPIs with reference to the existing literature i.e. The PMBOK and Prince2 and their respective standards for project management etc.. Secondly, the article focuses on the design and the steps required for the practical introduction and application of KPIs in order to control and monitor project decisions and actions. Furthermore, the article will emphasize on the challenges faced by organisations and modern day managers in relation to deriving beneficial meaning from the plethora of the available key performance indicators. In addition, it will emphasize upon the reasons for failure with regards to KPI implementation within organisations and projects .Multiple ways of projecting KPIs will be presented wherein, one relevant and specific tool will delved to a greater extent.

What are Key Performance Indicators ?

Wayne Eckerson's definition of a KPI is, "A KPI is a metric measuring how well the organization or an individual performs an operational, tactical or strategic activity that is critical for the current and future success of the organization".

However, According to Harold Kerzner, the term KPI can be dissected as the following:

• KEY= A great contributor to the success or failure of the project. A KPI is not just an ordinary metric,it can make or break a project.
• PERFORMANCE= Defines a metric that can be quantified, adjusted, measured and controlled. In order to improve performance, the metric must be controllable.
• INDICATOR= It has the ability to clearly represent the present and future performance.

In general, KPIs convey to a stakeholder, their current standing in a project in reference to where they ought to be. They help build value for an organisation by aligning performance in the lower level to the organisational level.

KPIs for projects can be interpreted in two manners. One, being that the project will aid the organisation in achieving a general, strategic KPI and the other being that KPIs can be used a progress measuring tools for ongoing projects.

A brief history of the application of KPIs

KPIs were used by the Wei dynasty rulers in China to rate the performance of the members of the royal family . Performance management and its concepts moved to the industry in the 20th century when there was a need for monitoring the performance of individual employees during the industrial revolution. The use of financial indicators and operational performance management became widespread in the 1930's when a dashboard-like "tableau de bord" was introduced in France to monitor performance. However, the creation of the balance scorecard by Dr Robert Kaplan and Dr David Norton was revolutionary in terms of introducing the first modern KPI framework.

KPIs as seen in project management standards and knowledge bodies

The PMBOK presents the potential use of KPIs under the umbrella of Project Integration Management. KPIs are represented as an aspect of project management information system which are in turn presented as tools and techniques to direct and manage project work. The primary uses of it also lie in project governance where monitoring performance is key. They can also be used in assessing the project's performance in comparison to the plan at the control point in the project life cycle. Monitoring and controlling project management process group. As an aspect of the Project Communications Management in the PMBOK® Guide, the collection, analysis, and the reporting of metrics and especially performance metrics is important for monitoring and controlling the progress of any project. These metrics are important for both the project manager and any related stakeholder connected to the project.

The PMI standard defines the Monitoring and Controlling Process Group which consists of processes that are required to track review and regulate the performance of a project . Monitoring refers to the collection and production of performance data and measures respectively. Controlling, on the other hand refers to the comparison of the actual project performance to the planned performance and project scope baseline. Hence, KPIs in such instances are critical tools.

PRINCE2 defines the use of KPIs as a measure of success. It is defined as a measure of performance that denotes how successful an organisation is in progressing towards its organisational objectives. It recommends the KPIs to be designed keeping balance in background. The balance should be achieved between qualitative and quantitative measure, project inputs and outputs and leading and lagging indicators which allow managers to track project progress during and after the completion of events. Additionally, PRINCE2 suggests the use dashboards to graphically represent the project progress. It suggests the use of common graphical tools such as pie charts and histograms to depict the project progress. These tools allow for easy understanding for stakeholders at all levels.

On an additional note, KPIs have also been in used in measuring the strategic performance of project portfolios with the help of project inter dependencies.

Designing and defining the KPIs

PRINCE2 suggests that the KPIs should be meeting the "acceptance criteria" and quality expectations which are defined in project product description while also satisfying the project tolerances such as time, cost, scope etc. which are defined in the project initiation documentation. The quality criteria particularly pertains to the KPI being SMART i.e. Specific, Measurable, Achievable, Relevant and Time-Bound .

The design and identification of KPIs will be easier pertaining to the fact that the Critical Success Factors (CSF) for the project are defined and identified. A KPI provides a leading indication if the CSF for the respective project is on track to be met.

It is critical to choose the right KPIs because:

• They allow for better decision making
• They improve project performance
• They improve customer-contractor-stakeholder relations
• They help in quick identification of problem areas

The SMART methodology is a good reference map for defining KPIs but Wayne Eckerson has developed a much more rich and detailed characteristics to design a KPI. According to Eckerson, KPIs are to be:

• Strategic
• Simple
• Owned
• Actionable
• Timely
• Referenceable
• Accurate
• Correlated
• Game Proof
• Aligned
• Standardized
• Relevant

It is also to be taken into account that KPIs are intertwined and interdependent. Hence, change in one set of metrics could trigger a greater change in other set of metrics. Hence, the project manager and the stakeholders are to keep an eye on the inter-dependencies while keeping the project's Critical Success Factors in mind.

Relevant examples and KPI types

KPIs can designed in multiple categories such that they benefit a project manager. Primarily, these categories include: Time based KPIs such as Cycle time, On-Time completion percentage, Number of adjustments to the schedule etc. Budget based KPIs such as budget variance, number of budget iterations etc. Quality based KPIs such as customer satisfaction and complaints, number of errors committed etc. There are also KPIs depicting effectiveness such as number of project milestones that are completed on time.

In addition to leading and lagging indicators as mentioned in PRINCE2, Harold Kerzner divides KPIs into five categories:

1. Quantitative KPIs: KPIs containing numerical values
2. Directional KPIs: KPIs indicating positive or negative direction of the indicators.
3. Practical KPIs: Indicators that interface with the company processes
4. Financial KPIs: Indicators that provide performance measurements

Steps for successful KPI implementation for projects and organisations

Figure 1:Building blocks for achieving successful implementation of KPIs in organisations and projects

According to the book "Developing, Implementing, and Using Winning KPIs" by David Parmenter, seven foundation stones in addition to seven main steps are required in order to successfully develop, utilize and implement KPIs in an organisation. It is important to note that the following steps are directly applicable to implementing KPIs in an organisation but can assure that these steps and foundation principles can be translated and adapted from an organisation and workplace based application to a project, program or portfolio based one. The six steps as presented in Figure 1 include:

• It is of utmost importance for a project or organisation to have the CEO and top management on board and committed to change

• It is important to assign a home grown chief measurement officer who has the know-how of the particular organisation.

• Leading and selling organisational change using John Kotter's model of leading change.

• Critical Success Factors (CSF) are the origin of all performance measures. It is important for a project manager to recognize the project's CSFs.

• Determining and recognizing KPIs that are suitable and tailored to the projects needs.

• Developing a reporting and KPI representation and projection framework for the specific project in order to drive performance.

PRINCE2 on the other hand correlates the success of business performance and KPI implementation to the maturity of an organisation.

KPI systems for the modern project manager

The following section summarizes the most common ways for project managers to monitor project performance

There are three primary ways to implement, monitor and keep tabs on the selected KPIs for the present day project managers. They are namely:

1. Scorecards: Primarily, used for aligning operational execution to the business strategy. Real world execution is mapped to a specific strategy.A balance scorecard KPI example can be "Profitable sales growth" which is the amalgamation of multiple customer and financial based metrics. A scorecards belongs in the most on the business decision making spectrum.

2. Dashboards: A dashboard provides the project manager with an overview of the key information in an intuitive and insightful manner. The dashboard as a tool is lesser strategic in nature in comparison to the balance scorecard. Hence, it falls a level below in the business decision making process. The execution of the operational goal directly contributes to the strategic goal of the project.

3. Reports: Reports are the most common and simple way of presenting KPIs. They offer an easy to read, classic yet deep overview of the project progress to the respective stakeholder

Figure 2: A boundary box for the KPI target

Figure 2 depicts the boundary box for a KPI target. It is a natural choice of color to warn cautions and dangerous territory of the KPIs. The acceptable percentage boundaries from the target are based on the integrity agreements with the stakeholders.

The use of Dashboards as a conventional source of graphical representation of KPIs will be analysed to a greater depth in the following section.

The use of Dashboards for KPI monitoring

The final goal of practically implementing KPIs in a Performance Management System can be realized through the effective development of a dashboard.

Dashboards are powerful communication tools that help convey and project results from KPIs. When properly implemented, dashboards can be very effective for e.g. they provide business intelligence. Their primary intention is to provide the most important information without the unnecessary clutter and confusion. Hence, dashboards aren't detailed reports. When effectively used, they reduce the meddling between stakeholders and top executives . The project manager's responsibility includes the explanation and interpretation of the KPIs displayed on the dashboard to the stakeholders. Typically, cluttered dashboards lead the way to project failure as the stakeholders are confused when keeping track of the KPIs and are unable to direct accurate and relevant strategic decisions. Hence, as mentioned in the previous sections, it is critical to keep the dashboard layout, the end user's needs and basic project management concepts in mind when designing the very Key Performance Indicators. Dashboards also propagate visual thinking as the information is presented and perceived visually. There are three main criteria that need to be considered when designing a dashboard:

• They need have aesthetic appearance

• Lucid and easy to understand

• Contain retention

Figure 3: An example layout of a Dashboard containing multiple analytic tools such as pie charts, line charts and histograms

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Dashboards should communicate very clearly, meaning the viewers should gain an instant understanding of the KPIs that are being projected such that actions can deployed. However, the information by KPI projected on the dashboard should be substantial enough such that and educated decision is made. Dashboards should be designed in such a way that the need for scrolling shouldn't arise.

Under the umbrella of dashboards, there are multiple visualization components such as, Alert icons, traffic light icons, progression bars, gauges etc. Additional supporting analytics include the use of pie, bar and line charts.

Primary Benefits of Dashboards

Dashboards allow for the visualization of performance into data measurements which aids in the project manager in gaining knowledge such that he/she could deploy corrective actions and pave way for improvement. Some of the many benefits of the use of dashboards include:

• Visual representation of performance measures

• Unravel new trends

• Measurement of efficiencies and inefficiencies

• Identification and correction of negative trends

• Time effective, as it doesn't require running multiple reports

• Aid in better and informed decision making

• Help in alignment of strategic and project goals

Data gathering for the specific dashboard

A top down approach is required in determining the data required for projecting KPIs in a dashboard. There should be considerable input from relevant stakeholders to determine their specific needs for developing a KPI. It is important to determine the level at which the relevant stakeholder requires his/her KPI overview. A high level request could be, for e.g. "I want to have an overview on how the project is running compared to the intended schedule" and a low level request could be "I want the figure for the scheduled performance index = (earned value/planned value)" which determines if the project is ahead or behind the planned project schedule which is similar to the former request but is much more specific and involves other discrete parameters.

Discussion

Why do KPIs fail ? / Limitation of KPI implementations

The failures of KPIs implemented on projects primarily correlates to the lack of an overview available to the project manager. The relevant members in the organisation believe that tracking the KPIs ends in the first line manager level which is a common misconception as represented by the balance scorecard. Another reason for failure of KPIs is the lack of power for the measuring officers or KPI responsible to take timely regulatory action towards negative indications. This also applies to project managers not taking timely actions towards certain "urgent" KPI indications. This particular risk is however, lower in the case of project managers when they are solely responsible for the tracking and monitoring. Sometimes, KPIs implementations fail due to non-frequent monitoring. A slow rate of change deludes the responsible manager into its frequent monitoring. Over reliance on a whole host of KPIs also creates a recipe for failure within organisations. It creates confusion among the members responsible for recording the measurements.

Additionally, intangible KPIs for e.g. KPIs focused at a strategic level are at risk of being misinterpreted where there is a lack of simple,lucid objectives and measurable goals .

As a tool under the wing of Performance Management Systems (PMS), KPIs have tendency to be limited to only projecting numerical information. The notion of using purely numerical KPIs is not challenged. . According to an MIT Management Review Study, KPIs are also found to be greatly underutilized as a leadership tool. Well aligned KPIs, in an organisational perspective are said to be utilized in order to gain a more holistic understanding of the customer. They are key in defining success for data-driven organisations and projects.

Wrong implementation of KPIs

In addition to their shortcomings, KPIs can indeed provide non desirable outcomes when interpreted in the wrong manner. A common mistake can be the hurried brainstorm of a list of KPIs for a particular CSF. KPIs should not be chosen for the sake of it but rather for their relevance and feasibility. Numerical metrics tend to form a stigma around respective employees and stakeholders who emotionally associate performance measurement with fear, anxiety and stress. The organisational culture should instead ease KPIs and performance measurement as a natural aspect of project management. The organisational culture should encourage their acceptance and importance in delivering success by associating performance measurement with feedback and as a gateway for potential improvement.

Conclusion

The use of KPIs is vital for all project managers in order to gain dynamic control of the project. However, as mentioned by David Parmenter, successful KPI implementation is not an overnight journey. It requires a systematic approach of synchronizing and aligning multiple elements within the organisation and projects that are major influences. Several considerations with regards to the anatomy of a KPI have to be taken into consideration prior to its implementation. Primarily, A KPI has to indicate a project's progress towards the Critical Success Factors. The benefits of KPIs greatly outweigh the limitations pertaining to the fact that they are designed the right way and contain majority of the characteristics as proposed by Eckerson. Successful implementation of KPIs to projects also involves a strenuous organisation change and involves having the top management and other relevant stakeholders on board.

Annotated Bibliography

• A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute.

The most comprehensive guide for project management also containing the PMI standard. A high impetus is given to performance measurement. Focus is laid upon monitoring and controlling project work and monitoring of ongoing activities under multiple chapters of the book.

• Kerzner, H. (2017). Project management metrics, KPIs, and dashboards. 3rd ed. Wiley.

A comprehensive book explaining that addresses all aspects of metrics management from the PMBOK® Guide. A very detailed book with a step by step guide to define, implement and interpret KPIs through an organisational and project based perspective. Additionally, it also presents the various tools such as dashboards and balance scorecards with suggestions for their effective implementations.

• Parmenter, D. (2015). Key performance indicators. Hoboken: John Wiley & Sons. 3rd ed. Wiley

A dedicated guide by David Parmenter to successfully implement KPIs in organisations by aligning daily actions and critical success factors. The six stage migration towards deploying successful KPIs is described in this book to a much greater depth.

Annotated Images

[Figure 1] Inspired from the book Key performance indicators. Hoboken: John Wiley & Sons. 3rd ed. Wiley but created by Shri Tejas Vedula

[Figure 2] Inspired from the book Project management metrics, KPIs, and dashboards. 3rd ed. Wiley but created by Shri Tejas Vedula